Finance executives’ outlook on U.S. economy improving, survey shows

CPA financial executives displayed a more positive but still wary
view of the U.S. economy in the most
recent quarterly Business and Industry Economic Outlook
Survey, released Thursday by the AICPA.

Those indicating optimism for the U.S. economy increased from 19% in
the previous quarter to 43%. Optimists outnumbered pessimists by
nearly 2 to 1, and optimism was just five percentage points short of
the 48% measured in the first quarter of 2011.

“It’s still a cautious optimism out there,” said Jim Morrison, CFO
of Pawtucket, R.I.-based materials science company Teknor Apex and
chairman of the AICPA’s Business & Industry Executive Committee.
“I don’t think people are ready to get on the bandwagon and say we’re
in for 3%, 4%, really robust growth in the next few years. But I think
they’re feeling better about it.”

Results of the AICPA survey of 1,358 CPA decision-makers conducted
between Feb. 15 and March 1 reflected other encouraging economic
indicators for the United States. On Feb. 28, the Dow Jones industrial
average closed above 13,000 for the first time since May 2008. New
U.S. unemployment benefit claims also have been near four-year lows in
recent weeks.

The CPA Outlook Index, which measures CPA decision-makers’ sentiment
about the U.S. economy, rose and matched its mark from the first
quarter of 2011. The index measures optimism across nine components;
its overall score of 69 for the first quarter is tied for its highest
mark since the third quarter of 2007, when the index was at 72. After
increasing six points in the fourth quarter of last year, the index
rose another five points this quarter.

CPA financial executives’ expected growth in revenue, profits, and
number of employees all rose from the previous quarter. The profit and
employee growth predictions matched the numbers from the first quarter
of 2011, which saw the highest marks in those areas since the fourth
quarter of 2007.

Nonetheless, it appears that the recent recession continues to have
a lingering effect on the U.S. economic outlook, particularly on jobs.
Despite an increase of four percentage points over last quarter, the
number of respondents who expect to hire in the short term is still
just 14%. One in five indicated they have too few employees, but are
hesitating to hire until further uncertainty is resolved. Fifty-seven
percent indicated that they have the right number of employees.

Morrison said the stagnant hiring plans reflect executives’
continued concerns over the economy as a whole.

“You don’t want to be hiring people and then get stuck with the idea
of having to let a few people go,” he said. “ … You’re trying to
retain good people right now and get through this still-uncertain time
period until you really get some real solid footing before you start
adding significantly to the workforce.”

The technology sector showed the greatest expectation for hiring,
followed by the “healthcare other” sector (pharmaceuticals, medical
device suppliers, etc.) and manufacturing. Morrison said the
manufacturing hiring expectations were an encouraging development for
the economy because that sector can lead a new growth phase.

Despite rising gasoline prices, just 37% of respondents expressed
concern about inflation. That’s down significantly from 61% in the
second quarter of 2011. Raw material costs, energy prices, and labor
costs were the top factors cited by those who were concerned about inflation.

Morrison said rising prices for raw materials would be a result of a
lack of supply.

“You had a lot of shutdowns of capacity that basically is not coming
back,” Morrison said. “ … So what they’ll have to do is build new,
productive capacity that sometimes takes years to bring on … and they
don’t want to spend those big bucks until they’re really certain that
we are in a growth spurt over the next three to five years.”

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